Judicial Fortitude: The Last Chance To Rein In the Administrative State, by Peter Wallison

Peter Wallison is a rarity in public life. He has been both a high-level government official in the administration of President Ronald Reagan and a renowned scholar at the American Enterprise Institute, where he is conducting pathbreaking research and analysis in a specialized area of public policy – financial regulation.

Having witnessed and worked in many corners of the body politic, Wallison is the perfect author to lay out the problem of the ever-growing administrative state and put forth different types of solutions to reduce its presence, if not end it outright. In his new book, “Judicial Fortitude: The Last Chance To Rein In the Administrative State” (Encounter Books, 2018), Wallison explains why the administrative state – also called the “fourth branch” or more recently the “deep state” – is anything but an abstract issue. It touches the lives of Americans’ and Europeans‘ lives, and voters on both continents know it.

In an outlook that is international in scope, Wallison compares unaccountable U.S. bureaucracy with the European Union super-state and shows the similarities in voter revolts against both. He quotes former London Mayor Boris Johnson, a leader of the Brexit movement calling for the United Kingdom to pull out of the EU, on the unaccountable EU bureaucracy. “We cannot do anything to stop the torrent of EU legislation, coming at a rate of 2,500 a year, and imposing costs of 600 million (pounds) per week on U.K. businesses,” Johnson proclaims.

Similarly, on the growth of the U.S. administrative state, Wallison cites figures from my Competitive Enterprise Institute colleague Wayne Crews that regulatory agencies have issued 101,380 rules since 1993, and never less than 3,000 rules in any one year.

Wallison captures the excesses of the whole administrative state from the Department of Education to the Environmental Protection Agency. But he especially shines when he spotlights the subject he knows best, the incredible brazenness of the post-Dodd-Frank financial regulators under the tenure of President Barack Obama.

For instance, when it comes to unaccountable bureaucracies, the Consumer Financial Protection Bureau is in a class by itself. Created by Dodd-Frank, the CFPB gets its money not from Congressional appropriations, but from a fixed amount from the Federal Reserve, hamstringing Congress’ oversight ability through the “power of the purse.” And its director, once appointed by the president and confirmed by the Senate, is virtually unremovable from his or her position during a five-year term. As then-Judge Brett Kavanaugh wrote in an opinion for the federal circuit court of the District of Columbia, virtually no other government official exercises this much power other than the president himself.

Wallison notes that Obama’s director of the CFPB took advantage of this power by regulating through enforcement. For instance, the Obama CFPB never defined the “abusive” lending practices Dodd-Frank gave the agency the power to punish. The CFPB just set effective new rules by levying massive fines on firms engaging in practices the CFPB would suddenly become abusive. While Wallison gives kudos to Mick Mulvaney, whom Trump appointed as the CFPB’s acting director, for reforming many of these practices, he notes that the structure of the CFPB and many other agencies still need to be changed and there need to be permanent mechanisms to hold regulators accountable.

Wallison calls on the courts to do this by abandoning misplaced notions of judicial restraint. He calls on courts to relax and ultimately abandon the “Chevron deference” doctrine, under which courts defer to regulatory agencies’ interpretations of laws unless the agencies blatantly contradict the laws as written by Congress.

Wallison argues that the Supreme Court made a grave mistake in its unanimous decision in the 1984 case of Chevron v. Natural Resources Defense Council. In that case, the court ruled that if a “statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on permissible construction of the statute.”

The ruling further constrained courts from being skeptical of agencies by adding the command that “a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.”

Wallison writes that what this “seems to mean is that administrative agencies may infer powers that Congress has not explicitly granted so long as that inference is ‘reasonable.’”

With courts so deferential, and Congress not reining them in, unelected bureaucrats have few checks on their power over the everyday lives of American consumers, investors, and entrepreneurs.

The good news is that Wallison sees the courts – starting with the Supreme Court – finally developing some “fortitude,” as the book is titled. In 2013, for instance, Chief Justice John Roberts wrote in a dissent in City of Arlington v. Federal Communications Commission – joined by Justices Samuel Alito and Anthony Kennedy — that even under Chevron deference, the courts must decide whether Congress “has in fact delegated to the agency lawmaking power to the agency at issue.”

Even though they were in a dissent, some federal courts seem to have taken Roberts’ words to heart. In the spring of 2018, the U.S. Court of Appeals for the Fifth Circuit invalidated the Department of Labor’s “fiduciary rule,” noting in Chamber of Commerce of the USA v. United States Department of Labor that Congress had never given the Labor Department power to regulate conduct of financial professionals, while it had explicitly given that power to the SEC.

Wallison sees developments such as these as a hopeful sign but urges the courts to develop further fortitude. He proposes interim steps courts can take before abandoning the Chevron deference doctrine entirely, such as tossing issues in which there is ambiguity in interpretation back to Congress.

With changes in the composition of the federal courts and the Supreme Court, Wallison’s book should be a useful tool to restore liberty and accountability in government envisioned by the Framer s of the U.S. Constitution. It could also be an international guide to holding bureaucracies in check.

But this book would be much more useful were it to have an index of important issues and court cases. And this lack of an index is my only significant criticism of this wonderful, easily readable book by an esteemed scholar with roots in the policy world.

Originally published at Cayman Financial Review.

John Berlau

Peter Wallison is a rarity in public life. He has been both a high-level government official in the administration of President Ronald Reagan and a renowned scholar at the American Enterprise Institute, where he is conducting pathbreaking research and analysis in a specialized area of public policy – financial regulation.

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